Here are the key scheduled events over the next several months in Europe. These are the known events. Uknown ones, such as the expulsion of Greece, or the unwind of the monetary experiment, a revolution here and there, are obviously not noted.
As the great Yogi says: "It ain't over 'till it's over" but May is now officially over and it was, in fact, a down month, despite the TREMENDOUS effort that was made in the past week to keep it from being a 5% loss.
European sovereign and contagiously financial risk was the major underperformer of May but the clear preference for IG credit over all and risk aversion towards high yield credit remains worrisome. Up-in-quality and up-in-capital structure along with the new-issue/curve steepener/basis trade in IG are solid themes but the last few days have seen a mad scramble for high beta equities into month-end salvage an otherwise dismal month.
The European banks are slowly but surely, through a tactic of Financial Arbitrage, moving more and more sovereign debt to the ECB and EU. Someone must pay for this debt and that will eventually be the entire European taxpayer base. That is the goal. In the initial stages of the Euro dream everyone was benefiting. Like an initial user of drugs the early stage is euphoric before the issues associated with the addiction surface. This stage fostered tremendous growth in debt - never ending Corniche housing villas in Spain and Portugal, embarrassing pensions and social benefits in Greece, tax advantages for off shoring corporations in Ireland or unjustifiable and hidden local government spending in Italy. It has been a captive market for the Asian Mercantile Strategy and a financial retail market boon for US financial instruments created from the never ending supply of freshly minted US fiat paper...Be aware that the mercantile financiers are so opposed to risk that operating as the secured bond holders of the banks they make the profit from the banks - not the shareholders. The financiers get first distribution of profits and are always kept whole. The public typically attacks the bank owners, not those who insidiously control and profit from its operations - the senior secured bond holders. It is the senior secured bond holders who must take the Greek 'haircut' but as part of the strategy they have their political mouthpieces vehemently opposing it...Forcing the Greeks to sell all that's left of the family jewels is now seen as a key part of the political solution. But who will want to buy them when there is every possibility of Greece leaving the euro? Capital is already fleeing Greece as fast as it can; what's the chance of attracting it for Greek assets? Someone is going to get real fire sale prices.
Now That The Banker Bailout Plan Is Set, Here Are The Greek Islands About To Hit Ebay And Fund Another Record Wall Street Bonus SeasonSubmitted by Tyler Durden on 05/31/2011 17:40 -0500
The description of the Greek bailout plan in the NYT has just one salient paragraph. Here it is: "With great reluctance, European governments have come to the conclusion that an additional €60 billion now, while politically unappealing, would be less costly than the unquantifiable public funds that would be needed if a restructuring of Greece’s debt produced a Lehman Brothers-like contagion that spread not just to Portugal and Ireland but possibly Spain and the financial system as a whole." Ah yes, with "great reluctance" European governments, bought and purchased by bankers, have decided to bail out their sources of capital. As for the conclusion, the only thing that matters is how long before European taxpayers realize that once again they are the mark in this latest pathetic attempt to ignore reality, which incidentally for those who are clueless, is the following: "“Greece’s G.D.P. is already declining and now the government will need to cut another €7 billion in spending,” said Jason Manolopoulos, who manages a hedge fund based in Athens and Geneva and is the author of “Greece’s ‘Odious’ Debt: The Looting of the Hellenic Republic by the Euro, the Political Elite and the Investment Community.” “That is only going to make the debt to G.D.P. figures worse,” he said. “There is no getting around it: Greece is insolvent.”" So while the bankester cartel is dead set on bleeding the last drop of hemoglobin from the petrifying Greek corpse, here, courtesy of the WSJ is what will soon be purchased by special purpose entities controlled by the same banks that are just now getting bailed out.
While Americans are apparently able to pay infinite amounts of money for gas, we still can't find a price they are willing to pay for homes as this morning's Case-Shiller Survey shows home prices in the 20-city index falling ANOTHER 3.6% from March to a brand new 8-year low.
Like clockwork, hours before the US market reopens, we get another Greece bailout. Since last week's Chinese white knight "rescue" of Portugal helped the EUR for about 18 hours, it is now time to get the biggest guns possible out: the WSJ reports that Germany, contrary to populist demand which has indicated that another German bailout of Greece would mean the end of Angela Merkel, has decided to allow Greek bailout round two to proceed. Per the WSJ: "Germany is considering dropping its push for an early rescheduling of
Greek bonds in order to facilitate a new package of aid loans for
Greece, according to people familiar with the matter.Berlin's concession that it must lend Greece more money, even without burden-sharing by bondholders in the short term, would help Europe overcome its impasse over Greece's funding needs before the indebted country runs out of cash in mid-July." The end result: the EURUSD surged by 70 pips from the closing print of 1.4270 to a high of 1.4350, although the half life of even that innuendo appears to have peaked and the pair is now on the way down, as it does absolutely nothing, except to destroy any credibility Merkel may have had, to resolve the impasse which is that, well, Greece is bankrupt.
Following electoral upheavals in Portugal, Germany and Finland, it is time to add Italy to the list, after Silvio Berlusconi's center-right coalition appears to have lost the critical election in Italy's financial capital, Milan, which also happens to be the center of the Bunga Bunga man's business and media empire. And while the mayoral election is merely symbolic for now, its outcome has substantial consequences for Italian governance (and thus stability): "With most votes already counted, leftist Giuliano
Pisapia was set to capture Milan city hall with some 55 percent of the
vote against around 46 percent for outgoing center-right mayor Letizia
Moratti. The local elections were seen as a referendum on the billionaire prime minister. "This is the first defeat for Berlusconi's center-right coalition since they came back to power, and it sends a clear signal of voters' disillusionment," said Maurizio Pessato of pollsters SWG. "These results make early elections more likely, possibly next year, and I don't see any chance of meaningful economic reforms being implemented by a lame duck government." As is by now known, while Spain has recently reentered the bond vigilante's scope after its bonds have continued to traded near record highs, Italy has so far been spared. That will change soon: "Italy is the only euro zone economy in which, taking account of inflation, citizens are poorer on average than they were 10 years ago. Berlusconi's government last month cut its growth forecast for this year to 1.1 percent from 1.3 percent and cut next year's outlook to 1.3 percent from 2.0 percent. S&P's lowered its credit outlook on Italy this month due to its weak growth and failure to adopt reforms, although worries of an immediate impact on the markets eased after the Treasury sold long-term bonds near the top of its target range Monday." Will this be the catalyst that is seen as "change" to the status quo by enough bond holders that Italy becomes that last peripheral European domino to fall?
EU Debt Contamination Deepens In Greece, Portugal And Ireland - Gold Just 2% From Record Nominal HighSubmitted by Tyler Durden on 05/30/2011 07:00 -0500
Gold and silver are flat in US dollars but higher in euros this morning. Trade is thin with the UK and US markets closed for spring holidays. Gold and silver were 1.75% and 8% higher last week and the precious metals and especially gold appear to be on solid footing due to the continuing debt crisis in Europe and concerns about a slowdown in the US and global economy. Despite gold being only some 2% away from the record nominal highs seen at the end of April ($1,563.70/oz), sentiment remains lackluster at best with little or no coverage of gold in the international financial press and media over the weekend. In the last two weeks we have experienced a lot of sell orders and the ratio of sell to buy orders has been the highest since our foundation in 2003. Value buyers emerged last week but much of the buying was by existing clients adding to their holdings. The threat of sovereign default and contagion increases by the day.
Europe Goes From Worse To Horrible: Ireland Broker Than Expected, Greece Mulls Splitting Up Into "Good" And "Bad" GreeceSubmitted by Tyler Durden on 05/29/2011 10:41 -0500
Greece hasn't even filed for bankruptcy yet and the "unexpected" consequences are already coming. In comments to The Sunday Times newspaper, Irish Transport Minister Leo Varadkar said the country will likely need another "unexpected" loan from the troica, after he became the first cabinet member to cast doubt in public on Ireland's ability to raise cash. In other words once on the temporary bailout wagon, always on the temporary bailout gain. Reuters reports: "I think it's very unlikely we'll be able to go back next year. I think it might take a bit longer ... 2013 might be possible but who knows?" Varadkar was quoted as saying. "It would mean a second program (of loans from the EU/IMF)," he said. "Either an extension of the existing program or a second program. I think that would generally be most people's view." We wonder how German taxpayers will fell now that they realize they have not one, not two, but three (and soon 5 or more) heroin addicts they need to clean, wash, scrub, and feed on a monthly basis (with their, and US money, but Americans continue to not care that the biggest source of capital for the IMF is them). And speaking of ground zero, Greece is now scrambling after the Independent said that even Sarkozy is now prepared to let the Greek chips falls where they may. Following earlier news that the troika believes that the privatization plan it itself set up is not ambitious enough, Greece which now realizes that Germany, the EU, IMF, and Franch all are prepared to let it go, the country is now coming up with last ditch ideas faster than a speeding bullet: according to Reuters: "A Greek paper reported on Sunday that the government was considering setting up a Spanish-style "bad bank" to clean up its lenders' accounts from "toxic" Greek bonds and make them more attractive to potential buyers." Of course since it is toxic Greek sovereign bonds we are talking about, this implies that the country will somehow be split into a "good" and "bad" version of itself. And who thought financial innovation only comes out of the US.
Reuters reports that following the anticipated meeting of Greek political leaders, absolutely nothing has been achieved, and, dramatic pause, no consensus was reached on the debt crisis. Expect more protests, more violence, more boosts to GDP expectations following Keynesian logic that the greater the destruction the higher the bounce, etc.
Gold and silver are lower today with profit taking, Chinese bond buying and increased risk appetite being cited for the price falls. Reports of China buying Eurozone government debt may have led to a rise in the euro and equities. However, the scale of sovereign debt risk internationally is such that even significant and ongoing Chinese buying would be unlikely to contain the crisis. While most of the focus has been on Greece and Eurozone sovereign debt issues, the not insignificant risk posed by a U.S. sovereign debt crisis increases by the day. The risk of a US default continues to rise which can be seen in the sharply increased cost to insure U.S. sovereign debt. The squabbling between Democrats and Republicans last week as the U.S. debt ceiling of $14.3 trillion was being reached did not help sentiment towards U.S. debt. Nor did former Soros’ partner Stanley Druckenmiller, the billionaire former-hedge fund manager and legendary investor, comment in the Wall Street Journal that the Federal Reserve’s bond purchases are a fraud and a “Ponzi scheme”. He advocated a U.S. default or a technical default, saying “"technical default would be horrible, but I don't think it's going to be the end of the world. It's not going to be catastrophic."
Euro Surges On News Chinese White Knight To Make Repeat Appearance, Attempt To Bail Out Europe For Second Time (Just As Unsuccessfully)Submitted by Tyler Durden on 05/25/2011 20:12 -0500
Back in January we wrote with some amusement that China would be Portugal's knight in shining armor following a "Reuters report that Portugal is in the process of making a private placement of bonds, without announcing details on size or the buyer... The WSJ has just confirmed that China was indeed the buyer, and the amount purchased was €1.1 billion." Since then Portugese bonds have tumbled and China has taken at least a good 10% loss. Five months later, it is time to kick the can once more down the road, courtesy of the Chinese yet again, who not surprisingly don't want to experience a partial wipe out on their foolish investments across their soon to be European protectorate should Greece file tomorow. The FT reports: "Asian investors including the Chinese government are expected to represent a “strong proportion” of the buyers of Portuguese bail-out bonds when the eurozone’s €440bn rescue fund begins auctioning them next month, according to senior fund officials. Klaus Regling, chief executive of the European Financial Stability Facility, told reporters on Wednesday that Beijing was “clearly interested” in the Portuguese auctions and that he expected China to participate." And whoever said that stupidity follows an arithmetic progression was wrong. It's exponential: "He argued the intense interest from Asia and other international investors showed renewed confidence in the future of the euro as a currency." Uh, no. That was the bullshit excuse in January. Now it is merely an attempt to not get destroyed in the upcoming massive pan-continental "rights offering" which will see existing "investors" take haircuts of up to 50%. But since when does Europe even pretend to tell the truth.
For now, the markets seem to be pricing in an eventual orderly resolution of the Greek debt crisis. As long as a unified and clear solution remains elusive to the Euro Zone, euro would continue to weaken against the dollar, while gold would prosper on fear and uncertainty.
The European Gold Confiscation Scheme Unfolds: European Parliament Approves Use Of Gold As CollateralSubmitted by Tyler Durden on 05/25/2011 06:04 -0500
Wonder why Europe is pressing so hard for Greece (and soon the other PIIGS) to collateralize its pre-petition loans on a Debtor in Possession basis? Here is your answer: "Yesterday’s unanimous agreement by the European Parliament’s Committee
on Economic and Monetary Affairs (ECON) to allow central counterparties
to accept gold as collateral, under the European Market Infrastructure
Regulation (EMIR), is further recognition of gold’s growing relevance as
a high quality liquid asset. This vote reinforces market demand for a greater choice of assets that can be used as collateral to meet margin liabilities." Luckily for Greece, it has 111.5 tons of gold in storage (somewhere at the New York Fed most likely). Looking down the road, Portugal has 382.5 tons, Spain 281.6, and Italy leads the pack with 2,451.8 tons.